1012-00001 · Client 1012 · Memoranda

change-of-control-provisions-analysis.docx DOCUMENT Finance & Banking

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MEMORANDUM

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT

TO: Stephanie Okafor, Partner, Banking & Finance, Calderwood & Harkness LLP Robert D. Nagamine, General Counsel & Secretary, Stonefield Logistics Group Inc.

FROM: Daniel Obi, Lead Associate, Banking & Finance, Calderwood & Harkness LLP

DATE: August 25, 2023

RE: Analysis of Change of Control Provisions — Comparison of Senior Credit Agreement and Mezzanine Credit Agreement; Interaction with Warrant Put Rights and Sponsor Consent Rights

Matter No.: 1012-00001

Billing Code: 231892.SLG

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I. Executive Summary

The purpose of this memorandum is to analyze and compare the "change of control" definitions and related consequences under (i) the Amended and Restated Credit Agreement, dated as of April 7, 2022 (the "Senior Credit Agreement"), among Stonefield Logistics Group Inc. ("Stonefield" or "SLG"), Whitmore National Bank, N.A. ("Whitmore") as Administrative Agent and Collateral Agent, and the senior lenders party thereto, as proposed to be amended by Amendment No. 3 to the Senior Credit Agreement to permit the mezzanine incurrence, and (ii) the draft Mezzanine Credit Agreement (the "Mezzanine Credit Agreement") circulated by Archer Blackwell & Moss LLP on August 18, 2023, among Stonefield, Ridgeline Mezzanine Capital Fund III, LP ("Ridgeline"), and the guarantors party thereto.

Both the Senior Credit Agreement and the Mezzanine Credit Agreement contain change of control provisions, each of which triggers distinct consequences upon the occurrence of a "Change of Control" (as defined in the respective agreement). Under the Senior Credit Agreement, a change of control constitutes an Event of Default, which entitles the Senior Agent and the Required Lenders to accelerate the entire outstanding principal balance of the senior facilities plus accrued interest and all other obligations. Under the Mezzanine Credit Agreement, a change of control triggers a mandatory prepayment obligation requiring Stonefield to offer to prepay the entire outstanding principal balance of the mezzanine facility at a premium of 103% of outstanding principal, together with all accrued and unpaid interest, including capitalized payment-in-kind ("PIK") interest.

Additionally, the Warrant Agreement to be dated as of the closing date of the mezzanine financing will contain a change of control put right entitling Ridgeline to require Stonefield (or its equity holders) to repurchase the warrants at fair market value upon the occurrence of a change of control.

The three definitional triggers in the Mezzanine Credit Agreement are: (a) the acquisition by any person or group (other than Cascade Ridge Capital Partners, LLC and its affiliates) of more than 50% of the outstanding voting equity interests of Stonefield; (b) Stonefield ceasing to be a direct wholly-owned subsidiary of Cascade Ridge SLG Holdings, LLC ("SLG Holdings"); and (c) the sale, transfer, or other disposition of all or substantially all of the assets of Stonefield and its subsidiaries, taken as a whole.

Key Finding: While the Senior Credit Agreement and Mezzanine Credit Agreement change of control definitions are substantially aligned in their core structure and triggering thresholds, there are notable differences in specificity regarding the Cascade Ridge carve-out, the treatment of intermediate holding company restructurings, the scope of excluded persons, and the "substantially all assets" formulation. These differences could create scenarios where a change of control is triggered under one agreement but not the other, with significant financial and operational consequences for Stonefield and its stakeholders. In particular, the Senior Credit Agreement utilizes a broader defined term — "Permitted Holder" — to carve out the sponsor group from the change of control trigger, while the Mezzanine Credit Agreement references the specific legal entity "Cascade Ridge Capital Partners, LLC and its affiliates," a formulation that may prove narrower in certain factual circumstances, including fund transfers, sponsor entity restructurings, and successor fund scenarios.

This memorandum also addresses the interaction of the change of control provisions with the Intercreditor Agreement governing the relative rights of the Senior Agent and Ridgeline, the warrant put rights held by Ridgeline under the Warrant Agreement, and the sponsor consent rights held by Cascade Ridge Capital Partners, LLC. Finally, we identify several potential gap scenarios and set forth our recommendations for negotiating modifications to narrow or eliminate these gaps prior to the execution of the Mezzanine Credit Agreement and Amendment No. 3.

II. Background and Transaction Context

A. The Borrower

Stonefield Logistics Group Inc. is a Delaware corporation headquartered at 4800 Commerce Parkway, Suite 1200, Fort Worth, Texas 76107. Stonefield operates a national network of less-than-truckload ("LTL") and intermodal freight services across the continental United States, with approximately 185 terminal locations, 4,200 owned tractors, and 12,800 trailers. For the twelve-month period ending June 30, 2023 (the "LTM Period"), Stonefield reported consolidated revenue of approximately $742,000,000 and Adjusted EBITDA (as defined in the Senior Credit Agreement) of approximately $108,600,000.

B. The Sponsor

Cascade Ridge Capital Partners, LLC ("Cascade Ridge") is a Delaware limited liability company with its principal office at 200 Clarendon Boulevard, 38th Floor, Boston, Massachusetts 02116. Cascade Ridge is a middle-market private equity firm focused on business services and logistics investments. The firm's Managing Partner is Vincent A. Palumbo.

Cascade Ridge acquired Stonefield in a take-private transaction completed on November 15, 2019, for a total enterprise value of approximately $520,000,000, funded through a combination of equity contributed by Cascade Ridge Capital Fund V, LP ("Fund V"), rollover equity from Stonefield management, and debt financing under the Senior Credit Agreement. As of the date hereof, Cascade Ridge holds approximately 78.4% of the outstanding equity interests of Stonefield through the intermediate holding company Cascade Ridge SLG Holdings, LLC, a Delaware limited liability company formed for the purpose of holding the Stonefield equity. The remaining approximately 21.6% of Stonefield's equity is held by management equity participants and co-investors pursuant to the terms of the Stockholders Agreement dated as of November 15, 2019.

C. Existing Senior Credit Facilities

The existing Senior Credit Facility consists of:

(a) a $275,000,000 Senior Secured Term Loan B facility (bearing interest at a rate of SOFR plus 375 basis points per annum, subject to a 0.50% SOFR floor, and maturing on November 15, 2026) (the "Term Loan B"); and

(b) a $50,000,000 Senior Secured Revolving Credit Facility (bearing interest at a rate of SOFR plus 350 basis points per annum, with a commitment fee of 0.50% per annum on undrawn commitments, and maturing on November 15, 2025) (the "Revolving Facility" and, together with the Term Loan B, the "Senior Facilities").

Whitmore National Bank, N.A. serves as the Administrative Agent and Collateral Agent under the Senior Credit Agreement. The senior lender syndicate consists of the following institutions and approximate hold amounts:

As of August 15, 2023, the outstanding principal balance under the Term Loan B is $275,000,000 (no scheduled amortization payments having yet come due), and the drawn amount under the Revolving Facility is approximately $12,000,000 in revolving loans and approximately $3,200,000 in outstanding letters of credit.

D. Proposed Mezzanine Financing

The proposed mezzanine financing consists of a $120,000,000 mezzanine term loan (the "Mezzanine Loan") to be provided by Ridgeline Mezzanine Capital Fund III, LP, a Delaware limited partnership with offices at 1700 Market Street, Suite 3400, Philadelphia, Pennsylvania 19103. The Mezzanine Loan will bear interest at a total rate of 1,100 basis points (11.00%) per annum, allocated between (i) 850 basis points of cash-pay current interest and (ii) 250 basis points of PIK interest, which will be capitalized and added to the outstanding principal balance of the Mezzanine Loan on each quarterly interest payment date. The Mezzanine Loan will mature on September 29, 2029 and will be secured by a second-priority lien on substantially all assets of Stonefield and its subsidiary guarantors, subordinate to the first-priority liens securing the Senior Facilities.

In connection with the Mezzanine Loan, Stonefield will issue to Ridgeline warrants (the "Warrants") representing 3.0% of the fully-diluted equity of Stonefield on a post-exercise basis, with a nominal exercise price of $0.01 per share. The terms of the Warrants will be governed by a Warrant Agreement to be dated as of the closing date of September 29, 2023.

E. Post-Closing Capital Structure

Following the closing of the Mezzanine Loan and the execution of Amendment No. 3, Stonefield's total funded debt will be as follows:

Total leverage on a pro forma basis will be approximately 3.75x LTM Adjusted EBITDA of $108,600,000 (comprising approximately 2.64x senior secured leverage and approximately 1.10x mezzanine leverage). First lien net leverage, as calculated under the Senior Credit Agreement's financial maintenance covenant, will be approximately 2.53x after netting approximately $12,400,000 of unrestricted cash.

F. Transaction Timeline and Counsel

Amendment No. 3 to the Senior Credit Agreement will be executed simultaneously with the Mezzanine Credit Agreement and the Intercreditor Agreement on the anticipated signing date of September 14, 2023. The closing of the Mezzanine Loan and funding of the $120,000,000 term loan is expected to occur on September 29, 2023, subject to satisfaction of customary closing conditions.

The following law firms are engaged in connection with the transaction:

• Calderwood & Harkness LLP (Stephanie Okafor, partner; Daniel Obi, lead associate) — counsel to Stonefield as Borrower.

• Archer Blackwell & Moss LLP (Harrison T. Moss, lead partner; Angela N. Whitford, lead associate) — counsel to Ridgeline as Mezzanine Lender.

• Renshaw Pratt LLP (David C. Renshaw, lead partner) — counsel to Whitmore National Bank, N.A. as Senior Agent.

• Caldwell Baines & Associates, PC (Patricia V. Baines) — tax counsel to Stonefield.

III. Change of Control Definition — Senior Credit Agreement (as Proposed to Be Amended)

A. Current Definition

The Amended and Restated Credit Agreement dated as of April 7, 2022, defines "Change of Control" in Section 1.01 (Definitions), and the occurrence of a Change of Control constitutes an Event of Default under Section 7.01(j) of the Senior Credit Agreement. As currently in effect (and as proposed to remain in effect following Amendment No. 3), the definition of "Change of Control" is triggered upon the occurrence of any of the following events:

Trigger (a) — Voting Equity Acquisition. Any "person" or "group" (as those terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder), other than any Permitted Holder, shall have acquired, directly or indirectly, beneficial ownership (as defined in Rule 13d-3 promulgated under the Exchange Act) of more than 50% of the aggregate ordinary voting power represented by the issued and outstanding voting equity interests of Stonefield. The defined term "Permitted Holder" is set forth in Section 1.01 of the Senior Credit Agreement and means (i) Cascade Ridge Capital Partners, LLC, (ii) any controlled affiliate of Cascade Ridge Capital Partners, LLC, (iii) any investment fund or investment vehicle that is managed, advised, or controlled by Cascade Ridge Capital Partners, LLC or any of its controlled affiliates (including any successor fund), (iv) any managing member, general partner, director, officer, or employee of any of the foregoing who is a co-investor, and (v) any management equity holders of Stonefield holding equity interests pursuant to a management equity plan approved by the board of directors of Stonefield, so long as such management equity holders do not in the aggregate hold more than 15% of the outstanding voting equity interests of Stonefield.

The "Permitted Holder" definition in the Senior Credit Agreement is thus relatively broad. It encompasses not only Cascade Ridge Capital Partners, LLC and its direct controlled affiliates, but also any investment fund or vehicle managed, advised, or controlled by Cascade Ridge, explicitly including successor funds. This breadth is significant in the context of private equity fund life cycles, as it contemplates the possibility that Stonefield's equity may be transferred from Fund V to a successor fund (such as a hypothetical Cascade Ridge Capital Fund VI, LP) without triggering a change of control.

Trigger (b) — Direct Parent Ownership. Stonefield shall cease to be a direct wholly-owned subsidiary of Cascade Ridge SLG Holdings, LLC. The Senior Credit Agreement specifically references the intermediate holding company by its full legal name and requires that Stonefield remain directly owned — i.e., that there be no interposition of additional entities between SLG Holdings and Stonefield, and that SLG Holdings maintain 100% of the issued and outstanding equity interests of Stonefield. The reference to "wholly-owned" means ownership of 100% of the issued and outstanding equity interests, without carve-out for management equity or minority interests.

Trigger (c) — Asset Disposition. The sale, transfer, or other disposition (whether in a single transaction or a series of related transactions) of all or substantially all of the assets of Stonefield and its subsidiaries, taken as a whole, to any person other than a Permitted Holder (as defined above). This trigger is framed broadly to capture not only outright sales but also transfers, contributions, assignments, and other dispositions, and it applies to a series of related transactions to prevent structured dispositions designed to avoid the change of control trigger.

Trigger (d) — Board Composition (Continuing Directors). The Senior Credit Agreement contains an additional change of control trigger that is not replicated in the Mezzanine Credit Agreement. Specifically, a Change of Control occurs if a majority of the seats (other than vacant seats) on the board of directors of Stonefield shall at any time be occupied by persons who were not (i) members of the board of directors of Stonefield on the closing date of the original Senior Credit Agreement (November 15, 2019) (the "Existing Directors"), (ii) nominated for election or elected to the board of directors with the approval or recommendation of a majority of the Existing Directors or directors previously so nominated or elected (collectively with the Existing Directors, the "Continuing Directors"), or (iii) nominated for election or elected to the board of directors by Cascade Ridge Capital Partners, LLC or any Permitted Holder exercising its rights under the Stockholders Agreement or Stonefield's organizational documents.

This Continuing Directors provision is a standard feature of leveraged credit agreements and is designed to protect lenders against hostile changes in board composition that could signal a loss of control by the incumbent equity holders. In the context of a sponsor-controlled company such as Stonefield, the practical significance of this trigger is limited because Cascade Ridge, through SLG Holdings, controls the appointment and removal of all directors under Stonefield's certificate of incorporation and the Stockholders Agreement. Nevertheless, the Continuing Directors trigger represents a fourth basis for a change of control under the Senior Credit Agreement that does not exist in the Mezzanine Credit Agreement.

B. Proposed Amendments (Amendment No. 3)

We have reviewed the draft of Amendment No. 3 to the Senior Credit Agreement circulated by Renshaw Pratt LLP on August 12, 2023. Amendment No. 3 does not substantively alter the definition of "Change of Control" in the Senior Credit Agreement. The amendments effected by Amendment No. 3 are focused on the following:

(i) The addition of a new defined term "Permitted Mezzanine Debt" to permit the incurrence of up to $120,000,000 in aggregate principal amount of mezzanine indebtedness from Ridgeline, subject to specified terms and conditions;

(ii) Amendments to the negative covenant in Section 6.01 (Indebtedness) to create an exception for the Permitted Mezzanine Debt;

(iii) Amendments to the negative covenant in Section 6.02 (Liens) to authorize the grant of second-priority liens on the Collateral to secure the Permitted Mezzanine Debt, subject to the terms of the Intercreditor Agreement;

(iv) Amendments to Section 6.09 (Restricted Payments) to permit the payment of cash interest and PIK interest on the Permitted Mezzanine Debt, subject to certain conditions (including absence of a continuing Event of Default under the Senior Credit Agreement);

(v) A new Section 6.18 requiring Stonefield to enter into the Intercreditor Agreement simultaneously with the closing of the Permitted Mezzanine Debt; and

(vi) Certain conforming amendments to other provisions of the Senior Credit Agreement.

The consent of the Senior Agent to the transactions contemplated by Amendment No. 3, which was delivered by Whitmore on September 5, 2023, was conditioned upon execution of Amendment No. 3 and the Intercreditor Agreement, compliance with specified leverage and liquidity requirements, and payment of a 25 basis point consent fee to the consenting senior lenders. The consent did not require or request any modification of the change of control provision, and Renshaw Pratt LLP has confirmed that the Senior Agent does not intend to propose any such modifications.

Consequence of Change of Control Under the Senior Credit Agreement. The occurrence of a Change of Control under the Senior Credit Agreement constitutes an Event of Default pursuant to Section 7.01(j). Upon the occurrence and continuance of such Event of Default, the Administrative Agent may (and, at the direction of the Required Lenders, shall) (a) declare the entire outstanding principal balance of the Term Loan B ($275,000,000), together with all accrued and unpaid interest and all other Obligations under the Senior Credit Agreement, to be immediately due and payable, (b) terminate the revolving commitments under the Revolving Facility, (c) demand cash collateralization of all outstanding letters of credit, and (d) exercise all other rights and remedies available to the Senior Agent and the senior lenders under the Senior Credit Agreement, the other Loan Documents, and applicable law. The financial consequence of such acceleration is severe: immediate maturity of the full $275,000,000 Term Loan B, any drawn amounts under the Revolving Facility (currently approximately $12,000,000), and all accrued interest and fees.

IV. Change of Control Definition — Mezzanine Credit Agreement

A. Definition. The draft Mezzanine Credit Agreement, as circulated by Archer Blackwell & Moss LLP on August 18, 2023, defines "Change of Control" in Section 1.01 (Definitions) and contains three triggering events, which are set forth below. We note that the Mezzanine Credit Agreement does not include a Continuing Directors trigger, an omission that represents a deliberate departure from the Senior Credit Agreement's four-trigger structure.

Trigger (a) — Voting Equity Acquisition. Any "person" or "group" (as those terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) other than Cascade Ridge Capital Partners, LLC and its affiliates, shall have acquired, directly or indirectly, beneficial ownership of more than 50% of the aggregate ordinary voting power represented by the issued and outstanding voting equity interests of Stonefield. The Mezzanine Credit Agreement does not use the defined term "Permitted Holder." Instead, it references the specific legal entity "Cascade Ridge Capital Partners, LLC and its affiliates." The term "affiliate" is defined in Section 1.01 of the Mezzanine Credit Agreement in a manner consistent with the standard formulation: "with respect to any person, any other person that directly or indirectly controls, is controlled by, or is under common control with such person," where "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, whether through ownership of voting securities, by contract, or otherwise.

Trigger (b) — Direct Parent Ownership. Stonefield shall cease to be a direct wholly-owned subsidiary of Cascade Ridge SLG Holdings, LLC. This trigger mirrors the corresponding provision in the Senior Credit Agreement and requires that Stonefield remain at all times a direct wholly-owned subsidiary of the specifically named intermediate holding company. The term "wholly-owned subsidiary" is defined in the Mezzanine Credit Agreement to mean a subsidiary of which 100% of the issued and outstanding equity interests (other than directors' qualifying shares or shares required to be held by foreign nationals under applicable law) are owned, directly or indirectly, by the parent entity.

Trigger (c) — Asset Disposition. The sale, transfer, or other disposition of all or substantially all of the assets of Stonefield and its subsidiaries, taken as a whole. Unlike the Senior Credit Agreement, the Mezzanine Credit Agreement's asset disposition trigger does not include the qualifier "to any person other than a Permitted Holder," meaning that an asset disposition to a Cascade Ridge affiliate could potentially trigger the change of control under the Mezzanine Credit Agreement (depending on whether such a disposition truly constitutes a sale of "all or substantially all" assets). This is a subtle but potentially significant difference. Under the Senior Credit Agreement, a transfer of substantially all assets to a Permitted Holder is expressly excluded; under the Mezzanine Credit Agreement, it is not.

B. Consequences Under the Mezzanine Credit Agreement

Upon the occurrence of a Change of Control under the Mezzanine Credit Agreement, the consequences are as follows:

Mandatory Prepayment Obligation. Pursuant to Section 2.11(c) of the Mezzanine Credit Agreement, upon the occurrence of a Change of Control, Stonefield is required to deliver to Ridgeline a written notice (the "Change of Control Notice") within ten (10) business days of the Change of Control event, offering to prepay the entire outstanding principal balance of the Mezzanine Loan at a price equal to 103% of the then-outstanding principal amount, together with all accrued and unpaid interest thereon (including all capitalized PIK interest that has been added to the outstanding principal balance as of the prepayment date), plus any applicable make-whole premium or breakage costs. If Ridgeline accepts the offer (which, from an economic perspective, it almost certainly would), Stonefield must consummate the prepayment within thirty (30) business days following the date of the Change of Control Notice.

Economic Magnitude. At closing, the principal amount of the Mezzanine Loan will be $120,000,000. The 3% premium on the initial principal amount alone would be $3,600,000. However, because the Mezzanine Loan bears PIK interest at 250 basis points per annum (compounding quarterly), the outstanding principal balance will increase over time. By way of illustration:

These figures are approximate and assume no voluntary prepayments. Accrued but unpaid cash interest (at 850 bps) would be payable in addition to the amounts shown.

Relationship to Events of Default. The Change of Control mandatory prepayment is structured as a contractual prepayment obligation rather than as an Event of Default per se. However, Section 7.01(a) of the Mezzanine Credit Agreement provides that the failure of Stonefield to make any payment (including any mandatory prepayment) when due constitutes an Event of Default after a grace period of five (5) business days. Accordingly, if Stonefield fails to make the mandatory prepayment within the required thirty (30) business-day window (plus the five business-day grace period), such failure would ripen into an Event of Default under the Mezzanine Credit Agreement, entitling Ridgeline to accelerate the entire outstanding balance and exercise all available remedies (subject to the Intercreditor Agreement).

Timing. As noted above, Stonefield must deliver the Change of Control Notice within ten (10) business days of the Change of Control event and must consummate the prepayment within thirty (30) business days thereafter. This creates a maximum window of approximately forty (40) business days from the Change of Control event to completion of the mandatory prepayment.

V. Side-by-Side Comparison of Change of Control Triggers

A. Tabular Comparison

The following table provides a detailed side-by-side comparison of each element of the change of control definition under the Senior Credit Agreement and the Mezzanine Credit Agreement, together with our observations regarding areas of alignment and divergence:

B. Analysis of Key Divergences

1. Scope of the Cascade Ridge Carve-Out. As illustrated in the table above, the most significant definitional divergence between the two agreements concerns the scope of persons excluded from the voting equity acquisition trigger. The Senior Credit Agreement employs the defined term "Permitted Holder," which is constructed as a multi-layered definition designed to accommodate the full range of structures and relationships common in private equity-controlled portfolio companies. In particular, the inclusion of "any investment fund or investment vehicle that is managed, advised, or controlled by Cascade Ridge Capital Partners, LLC or any of its controlled affiliates (including any successor fund)" is specifically drafted to address the fund life-cycle issue — i.e., the possibility that Fund V may reach the end of its investment term and that Stonefield's equity may need to be transferred to a successor vehicle within the Cascade Ridge platform.

By contrast, the Mezzanine Credit Agreement references only "Cascade Ridge Capital Partners, LLC and its affiliates." While the definition of "affiliate" (based on a standard control/controlled by/common control formulation) may be sufficiently broad to capture most entities within the Cascade Ridge organizational structure, it raises the following specific concerns:

(a) Successor Funds. If Cascade Ridge Capital Partners, LLC sponsors a new fund — for example, Cascade Ridge Capital Fund VI, LP — and transfers the Stonefield equity from Fund V to Fund VI as part of a continuation vehicle or secondary transaction, the question arises whether Fund VI would qualify as an "affiliate" of Cascade Ridge Capital Partners, LLC. This determination would turn on whether Cascade Ridge Capital Partners, LLC "controls" Fund VI within the meaning of the affiliate definition. In most private equity fund structures, the general partner entity (which is typically controlled by the management company) controls the fund. If Cascade Ridge Capital Partners, LLC controls the general partner of Fund VI (either directly or indirectly), then Fund VI would likely qualify as an affiliate. However, if there has been any restructuring of the management company, change in the general partner entity, or departure of key principals, the analysis becomes more uncertain. The Senior Credit Agreement's "Permitted Holder" definition avoids this ambiguity entirely by explicitly referencing "any investment fund or investment vehicle that is managed, advised, or controlled by" Cascade Ridge, using "managed" and "advised" as independent bases for inclusion alongside "controlled."

(b) Management Company Restructurings. Private equity sponsors periodically restructure their management companies for tax, regulatory, or succession planning purposes. If Cascade Ridge Capital Partners, LLC were to merge into, or transfer its assets to, a newly formed management entity (e.g., "Cascade Ridge Capital Advisors, LLC"), the new entity might not technically be an "affiliate" of the original entity (particularly if the original entity ceases to exist). Under the Senior Credit Agreement's "Permitted Holder" definition, the broader language (including references to successor entities and controlled affiliates) would likely cover this scenario. Under the Mezzanine Credit Agreement's narrower formulation, there is a meaningful risk that such a restructuring could inadvertently trigger the change of control.

(c) Management Co-Investors. The Senior Credit Agreement's "Permitted Holder" definition explicitly includes management equity holders up to a 15% ownership threshold. The Mezzanine Credit Agreement's formulation does not include any such carve-out for management co-investors. While management equity holders at Stonefield's current ownership levels (approximately 21.6% in the aggregate, inclusive of co-investors and management) would not individually or as a group exceed 50% of the voting equity (and thus would not independently trigger the >50% threshold), the absence of a management carve-out could become relevant in combination with other structural changes.

Recommendation: We recommend seeking to align the Mezzanine Credit Agreement's carve-out with the Senior Credit Agreement's "Permitted Holder" concept, either by importing the same defined term or by expanding the Mezzanine Credit Agreement's excluded persons language to explicitly cover successor funds managed, advised, or controlled by Cascade Ridge, successor management entities, and management equity holders up to a stated percentage threshold. This alignment would reduce the risk of divergent outcomes and simplify compliance monitoring for Stonefield's legal and finance teams.

2. Direct Parent / Wholly-Owned Subsidiary Requirement. Both the Senior Credit Agreement and the Mezzanine Credit Agreement require that Stonefield remain at all times a direct wholly-owned subsidiary of the specifically named intermediate holding company, Cascade Ridge SLG Holdings, LLC. While this requirement is aligned across the two agreements, it presents a structural rigidity that merits careful consideration.

The requirement that Stonefield remain a "direct" subsidiary of SLG Holdings means that no additional entity may be interposed between SLG Holdings and Stonefield in the organizational chain. This precludes, for example, the creation of a new intermediate holding company between SLG Holdings and Stonefield for tax planning purposes (such as creating a tax blockers or alternative structures to optimize state or federal tax treatment), for regulatory purposes (such as creating a regulated holding company in a state requiring trucking licenses to be held by specific entity types), or for liability management purposes.

The requirement that Stonefield remain "wholly-owned" by SLG Holdings means that SLG Holdings must hold 100% of the issued and outstanding equity interests of Stonefield at all times. This creates a potential conflict with management equity programs. Currently, Cascade Ridge holds 78.4% of Stonefield's equity through SLG Holdings, and the remaining 21.6% is held by management and co-investors. Based on our review of Stonefield's organizational documents, we understand that the management equity interests are held directly by the individual holders at the Stonefield level (not at the SLG Holdings level). If this understanding is correct, then SLG Holdings does not currently own 100% of Stonefield's equity — it owns approximately 78.4%.

This presents an immediate interpretive question: Has the change of control trigger (b) already been tripped? The answer depends on the precise structure of the management equity. If the management equity is structured as a separate class of non-voting interests, limited liability company interests, or profits interests that do not constitute "equity interests" as defined in the relevant agreement, then SLG Holdings may still be considered the owner of 100% of the relevant "equity interests" for purposes of the change of control definition. We have reviewed the Stonefield LLC Agreement (as Stonefield was initially organized as an LLC before conversion to a corporation) and the subsequent Certificate of Incorporation and note that the management equity consists of shares of Class B Common Stock of Stonefield, which carry voting rights on an as-converted basis. This suggests that, structurally, SLG Holdings does not currently hold 100% of the outstanding equity interests of Stonefield.

However, we note that Section 1.01 of both the Senior Credit Agreement and the Mezzanine Credit Agreement contains a specific acknowledgment that the management equity structure as described in the Stockholders Agreement and the organizational documents delivered on the closing date is a "permitted" structure and does not constitute a Change of Control. This acknowledgment effectively grandfathers the existing management equity structure. The concern, however, is whether future issuances of management equity — beyond the levels existing on the closing date — could erode SLG Holdings' percentage ownership and trigger the "wholly-owned" requirement.

Recommendation: We recommend that both agreements include a specific carve-out for customary management incentive equity programs, providing that the issuance of equity interests to management, directors, and employees pursuant to equity incentive plans approved by the board of directors of Stonefield shall not, in and of itself, cause Stonefield to cease to be a "wholly-owned" subsidiary of SLG Holdings, provided that such issuances do not in the aggregate exceed a specified percentage (we recommend 10% to 15% of the total outstanding equity interests on a fully-diluted basis) of Stonefield's equity. This carve-out should be consistent across both agreements to avoid divergent triggering outcomes.

3. "Substantially All Assets" Ambiguity. Both the Senior Credit Agreement and the Mezzanine Credit Agreement use the phrase "all or substantially all" assets in their respective asset disposition triggers, without defining a quantitative threshold for what constitutes "substantially all." This is a well-recognized area of legal ambiguity.

Under Delaware law — which is relevant because Stonefield is a Delaware corporation — the "substantially all" standard has been interpreted by the Delaware courts in a line of cases beginning with Gimbel v. Northgate Technologies, Inc., 316 A.2d 599 (Del. Ch. 1974), aff'd, 316 A.2d 619 (Del. 1974). The Delaware courts have adopted a combined quantitative and qualitative test, examining (i) the percentage of total assets, revenues, and earnings attributable to the assets being transferred, and (ii) whether the transaction is "out of the ordinary" and substantially reduces the corporation's operations in a qualitative sense. The Delaware courts have not adopted a bright-line numerical threshold, and outcomes are highly fact-specific. Dispositions of assets representing 50% to 75% of total consolidated assets have been found to constitute "substantially all" in some circumstances but not others.

Under New York law — which governs both the Senior Credit Agreement and the Mezzanine Credit Agreement — the analysis is similar. New York courts have applied an analogous multi-factor test, but with less developed case law in the specific context of credit agreement change of control triggers. In practice, New York courts interpreting credit agreement provisions look primarily to the plain language of the contract and the reasonable expectations of the parties, which provides limited guidance when the term at issue ("substantially all") is itself inherently imprecise.

The absence of a quantitative safe harbor means that Stonefield, its counsel, and its lenders face inherent uncertainty in the event of a partial asset disposition. As discussed in Section IX below (Scenario 3), a divestiture of a material subsidiary or business line — such as the intermodal division operated by Stonefield Intermodal Services, Inc., which represents an estimated 28% to 32% of consolidated assets and approximately 25% of consolidated revenue — would fall into a gray zone under both agreements.

We also note a secondary divergence: as discussed above, the Senior Credit Agreement's asset disposition trigger excludes transfers "to any person other than a Permitted Holder," while the Mezzanine Credit Agreement does not include this Permitted Holder carve-out. This means that an intra-group transfer of substantially all assets to a Cascade Ridge affiliate (for example, in connection with a reorganization or restructuring) could theoretically trigger the Mezzanine change of control without triggering the Senior change of control.

Recommendation: We recommend proposing a quantitative safe harbor in both agreements, specifying that the sale, transfer, or other disposition of assets shall not constitute a "Change of Control" unless such assets represent 75% or more of (x) the consolidated total assets of Stonefield and its subsidiaries as reflected on the most recent balance sheet delivered pursuant to the financial reporting covenants, or (y) the consolidated total revenue of Stonefield and its subsidiaries for the most recently completed four fiscal quarter period. Additionally, the Mezzanine Credit Agreement's asset disposition trigger should be amended to include a Permitted Holder carve-out consistent with the Senior Credit Agreement, to prevent inadvertent triggering in the context of intra-group reorganizations.

4. Board Composition Trigger (Senior Agreement Only). As described in Section III.A above, the Senior Credit Agreement contains a fourth change of control trigger based on the composition of Stonefield's board of directors (the "Continuing Directors" trigger), which provides that a Change of Control occurs if a majority of the board seats are occupied by persons who are not Continuing Directors (defined to include original closing-date directors, directors nominated or approved by Continuing Directors, and directors nominated by Cascade Ridge or any Permitted Holder).

The Mezzanine Credit Agreement does not include a Continuing Directors trigger. This creates an asymmetry: a change in board composition meeting the Continuing Directors trigger would constitute a Change of Control under the Senior Credit Agreement (and thus an Event of Default) but would not constitute a Change of Control under the Mezzanine Credit Agreement (and thus would not trigger the mandatory prepayment obligation).

In practice, the significance of this asymmetry is limited in the current context, for two reasons. First, as long as Cascade Ridge (through SLG Holdings) controls a majority of the voting equity of Stonefield, Cascade Ridge has the ability to appoint and remove all directors, making an involuntary board turnover extremely unlikely. Second, even if a board composition change were to occur (for example, if Cascade Ridge voluntarily ceded board control as part of a minority investment or a governance reform), such an event would likely be accompanied by other structural changes that would independently trigger the Mezzanine change of control (e.g., a transfer of equity interests or a sale of assets).

Nevertheless, the asymmetry is worth noting for completeness, and we recommend that Stonefield's compliance team monitor board composition changes as a matter of course to ensure that any change triggering the Senior change of control is identified promptly and that the implications under both the Senior and Mezzanine facilities are assessed.

VI. Interaction with Intercreditor Agreement

The Intercreditor Agreement, to be dated as of September 14, 2023 (the "Intercreditor Agreement"), will be entered into among Whitmore National Bank, N.A. as Senior Agent, Ridgeline Mezzanine Capital Fund III, LP as Mezzanine Lender, and acknowledged and agreed by Stonefield Logistics Group Inc. and the subsidiary guarantors. The Intercreditor Agreement governs the relative rights and priorities of the Senior Agent and Ridgeline with respect to the shared collateral, the exercise of remedies, and the subordination of mezzanine payments during specified periods.

The interaction between the change of control provisions and the Intercreditor Agreement raises several complex issues, which we analyze below.

A. Enforcement Standstill

If a Change of Control triggers an Event of Default under the Senior Credit Agreement and the senior lenders elect to accelerate the Senior Obligations, the Intercreditor Agreement imposes a 180-day enforcement standstill on Ridgeline's ability to exercise remedies against the shared collateral. During this standstill period (the "Senior Enforcement Period"), the Senior Agent has the sole and exclusive right to exercise remedies against the shared collateral, including the right to foreclose on liens, sell collateral in a commercially reasonable manner, and apply proceeds in accordance with the payment waterfall specified in the Intercreditor Agreement. Ridgeline may not exercise any remedies against the shared collateral during the Senior Enforcement Period, and any proceeds received by Ridgeline from the shared collateral during this period must be turned over to the Senior Agent.

The standstill expires on the earlier of (i) the 180th day following the commencement of the Senior Enforcement Period and (ii) the date on which the Senior Obligations have been indefeasibly paid in full in cash. After the expiration of the Senior Enforcement Period, Ridgeline is free to exercise its own remedies against the shared collateral, subject to the Senior Agent's prior lien and the payment waterfall.

B. Payment blockage

Separately from the enforcement standstill, the Intercreditor Agreement contains a payment blockage mechanism. Upon the occurrence of an Event of Default under the Senior Credit Agreement, the Senior Agent may deliver a Payment blockage Notice to Stonefield and Ridgeline, which blocks the payment of "Subordinated Payments" to Ridgeline for a period of up to 180 consecutive days (the "Payment blockage Period"). The Senior Agent may deliver no more than one Payment blockage Notice during any 360-day period.

The critical question in the change of control context is whether the 103% mandatory prepayment to Ridgeline upon a Change of Control constitutes a "Subordinated Payment" subject to blockage under the Intercreditor Agreement. We have reviewed the draft Intercreditor Agreement and note that "Subordinated Payments" is defined to include "all payments of principal, interest (whether cash pay or PIK), fees, premium, or other amounts owing to the Mezzanine Lender under the Mezzanine Loan Documents." Based on this broad definition, the mandatory prepayment at 103% of outstanding principal — which includes both a return of principal and a 3% premium — would appear to fall within the definition of Subordinated Payments and would therefore be subject to blockage during a Payment blockage Period.

This creates a potentially problematic sequencing issue in a change of control scenario. If a single event constitutes a Change of Control under both the Senior Credit Agreement and the Mezzanine Credit Agreement (which, as we have discussed, would be the case for the most common triggering events), the following sequence would occur:

(1) The Change of Control triggers an Event of Default under the Senior Credit Agreement.

(2) The Senior Agent delivers a Payment blockage Notice, blocking Subordinated Payments (including the 103% mandatory prepayment) to Ridgeline for up to 180 days.

(3) The Change of Control simultaneously triggers the mandatory prepayment obligation under the Mezzanine Credit Agreement, requiring Stonefield to deliver a Change of Control Notice within 10 business days and to consummate the prepayment within 30 business days thereafter.

(4) Stonefield is contractually obligated to make the prepayment to Ridgeline under the Mezzanine Credit Agreement, but is contractually prohibited from making the payment to Ridgeline under the Intercreditor Agreement during the Payment blockage Period.

(5) If Stonefield complies with the Payment blockage Notice and withholds the mandatory prepayment, it would fail to make the payment within the 30 business-day window required by the Mezzanine Credit Agreement, which (after the 5 business-day grace period) would constitute an Event of Default under the Mezzanine Credit Agreement.

This circularity could place Stonefield in a position where compliance with one agreement necessarily results in default under the other. We believe this result is not intended by the parties and should be addressed through clarifying language in one or both of the Intercreditor Agreement and the Mezzanine Credit Agreement.

C. Purchase Option

The Intercreditor Agreement grants Ridgeline a purchase option, exercisable upon the occurrence of an acceleration of the Senior Obligations, to purchase the entire outstanding Senior Obligations at a price equal to par (100% of the outstanding principal balance) plus all accrued and unpaid interest, fees, and other amounts owing to the senior lenders. This purchase option must be exercised, if at all, within thirty (30) days of the acceleration of the Senior Obligations.

In a change of control scenario where both facilities are triggered, Ridgeline could exercise its purchase option to acquire the Senior Obligations at par, thereby removing the Payment blockage and the Senior Enforcement Period, and then receive the mezzanine mandatory prepayment directly from Stonefield. This strategy would allow Ridgeline to (i) recover the full Senior Obligations at par (and benefit from any future recoveries on the senior debt in excess of par), and (ii) receive the 103% mandatory prepayment on the mezzanine debt, effectively consolidating both positions.

However, exercising the purchase option would require Ridgeline to deploy substantial additional capital. As of the expected closing date, the Senior Obligations would total approximately $290,200,000 (consisting of $275,000,000 in Term Loan B principal, approximately $12,000,000 in drawn revolving loans, approximately $3,200,000 in letter of credit obligations). Ridgeline would need to assess whether the economics of purchasing the Senior Obligations and receiving the mezzanine prepayment justify the required capital outlay, taking into account the enterprise value of Stonefield in the change of control scenario and the creditworthiness of the acquiring entity.

This creates a complex sequencing issue that requires careful planning in any change of control scenario. We recommend that the Calderwood & Harkness team, together with Stonefield's financial advisors, develop a detailed payment waterfall model for various change of control scenarios, incorporating the intercreditor mechanics, the mezzanine mandatory prepayment, and the warrant put right (discussed in Section VII below).

VII. Interaction with Warrant Put Rights

A. Warrant Structure

Under the Warrant Agreement to be dated as of September 29, 2023 (the closing date of the Mezzanine Loan), Ridgeline will hold warrants representing 3.0% of the fully-diluted equity of Stonefield on a post-exercise basis, with a nominal exercise price of $0.01 per share. The warrants will be exercisable at any time on or after September 29, 2024 (the first anniversary of issuance) and will expire on September 29, 2033 (the tenth anniversary of issuance), subject to earlier exercise or put.

B. Put Right Triggers

The Warrant Agreement includes a put right exercisable by Ridgeline upon the occurrence of any of the following events:

(i) A "Change of Control" (as defined in the Warrant Agreement, which cross-references the definition in the Mezzanine Credit Agreement);

(ii) An initial public offering ("IPO") by Stonefield or any successor entity; or

(iii) The seventh anniversary of issuance (September 29, 2030), if the warrants have not previously been exercised or put.

C. Put Price

Upon exercise of the put right, the put price is equal to the fair market value of the equity interests subject to the warrants (net of the nominal $0.01 per share exercise price), as determined by an independent appraiser mutually selected by Stonefield and Ridgeline. If the parties are unable to agree on an appraiser within fifteen (15) days of the put notice, each party shall select one appraiser, and the two selected appraisers shall jointly select a third appraiser, whose determination shall be final and binding. The appraisal is to be conducted on a going-concern basis, without any discount for lack of marketability or minority interest discount, reflecting the fair market value of 100% of the equity of Stonefield and then allocating 3.0% thereof to Ridgeline's warrants.

D. Aggregate Change of Control Payment Obligation

Upon a change of control, Ridgeline would be entitled to receive both (a) the 103% mandatory prepayment on the mezzanine debt under the Mezzanine Credit Agreement and (b) the fair market value put price on the warrants under the Warrant Agreement. The aggregate payment obligation could be very substantial:

• Mezzanine Prepayment: 103% of the then-outstanding principal balance of the Mezzanine Loan, including all capitalized PIK interest. As illustrated in the table in Section IV.B above, this amount will range from approximately $123,600,000 at closing to approximately $140,074,000 by Year 5, plus accrued cash interest.

• Warrant Put: Fair market value of 3.0% of the fully-diluted equity of Stonefield. By way of illustration, if Stonefield is sold in a change of control transaction at an enterprise value of $700,000,000 (reflecting approximately 6.4x the current LTM Adjusted EBITDA of $108,600,000), and if total net debt at the time of sale is approximately $400,000,000, the implied equity value would be approximately $300,000,000. At 3.0% of fully-diluted equity, the warrant put price would be approximately $9,000,000 (before deducting the nominal $0.01 exercise price). If the enterprise value at exit is higher — for example, $800,000,000 or $900,000,000 — the warrant put price would increase proportionally (to approximately $12,000,000 or $15,000,000, respectively).

• Aggregate: The total payment to Ridgeline upon a change of control could range from approximately $132,600,000 (at closing, at current valuation levels) to well in excess of $155,000,000 (after several years of PIK accretion, at higher exit valuations), exclusive of accrued cash interest.

E. Timing Interaction

The warrant put right and the mezzanine mandatory prepayment are likely to be triggered simultaneously upon a change of control event, because the Warrant Agreement cross-references the Mezzanine Credit Agreement's change of control definition. However, the Mezzanine Credit Agreement and the Warrant Agreement may contain different timing mechanics for consummating the respective payments.

Under the Mezzanine Credit Agreement, Stonefield must deliver a Change of Control Notice within ten (10) business days and consummate the prepayment within thirty (30) business days thereafter. The Warrant Agreement's put mechanics, as currently drafted by Archer Blackwell & Moss LLP, provide that Ridgeline must deliver a put notice within forty-five (45) days of the change of control event, and Stonefield must consummate the repurchase within sixty (60) days of the put notice. This means the warrant put payment could come due significantly later than the mezzanine mandatory prepayment — potentially as late as 105 days after the change of control event, compared to 40 business days for the mezzanine prepayment.

While this staggering may provide some cash flow relief, it also means that Stonefield (or its successor) must plan for two separate large payments within approximately three to four months of a change of control event. In a sale transaction, these payments would typically be funded from the sale proceeds; however, the timing and mechanics of the closing of the sale transaction, the release of escrow funds, and the sequencing of debt repayments must be carefully coordinated.

F. Anti-Dilution Protections

The Warrant Agreement contains weighted-average broad-based anti-dilution protections, which adjust the number of shares issuable upon exercise of the warrants (and, accordingly, the percentage of fully-diluted equity represented by the warrants) in the event of dilutive issuances of equity interests at a price below the then-applicable exercise price. Given the nominal $0.01 exercise price, virtually any equity issuance by Stonefield would be at a price above the exercise price and would therefore not trigger the anti-dilution adjustment. However, certain structural transactions — such as stock splits, reverse stock splits, stock dividends, or recapitalizations — could affect the number of shares issuable upon exercise and should be monitored.

VIII. Interaction with Cascade Ridge Sponsor Consent Rights

A. Structural Control

As the controlling equity holder of Stonefield — holding approximately 78.4% of the outstanding equity interests through SLG Holdings — Cascade Ridge Capital Partners, LLC exercises effective control over all fundamental corporate decisions at Stonefield. This control is exercised through Cascade Ridge's rights under Stonefield's organizational documents (the Certificate of Incorporation and Bylaws) and the Stockholders Agreement dated as of November 15, 2019, among Stonefield, SLG Holdings, Cascade Ridge, and the management equity holders.

Under the Stockholders Agreement, the consent of Cascade Ridge (acting through SLG Holdings) is required for any of the following actions, among others: (i) any merger, consolidation, or business combination involving Stonefield; (ii) any sale, transfer, or disposition of all or substantially all of the assets of Stonefield; (iii) any issuance of equity interests of Stonefield (other than pursuant to approved equity incentive plans); (iv) any amendment to the organizational documents of Stonefield; (v) any incurrence of indebtedness in excess of specified thresholds; and (vi) any voluntary dissolution or liquidation of Stonefield. As a practical matter, therefore, any transaction constituting a change of control under either the Senior Credit Agreement or the Mezzanine Credit Agreement would require the affirmative consent of Cascade Ridge.

B. Voluntary Exit Scenarios

The change of control triggers are designed to address scenarios in which control of Stonefield passes from Cascade Ridge to a third party. In virtually all realistic scenarios, such a change of control would be the result of a voluntary decision by Cascade Ridge to exit its investment in Stonefield. The most common exit scenarios include:

(a) Sale to a Strategic Acquirer. Cascade Ridge sells its equity interest in Stonefield (through a sale of 100% of the equity of SLG Holdings, or a merger of Stonefield with a strategic buyer) to a transportation or logistics company seeking to expand its LTL or intermodal operations. This would trigger the change of control under both the Senior Credit Agreement (trigger (a)) and the Mezzanine Credit Agreement (trigger (a)), as well as the warrant put right.

(b) Secondary Buyout. Cascade Ridge sells its equity interest to another private equity sponsor. The analysis is the same as a strategic sale, with the change of control triggered under both agreements and the warrant put right exercisable.

(c) IPO. Stonefield conducts an initial public offering, with Cascade Ridge retaining a controlling stake initially and selling down over time. An IPO alone would not trigger the change of control under either agreement (as Cascade Ridge would retain more than 50% of the voting equity immediately following the IPO). However, subsequent sell-downs could, over time, cause Cascade Ridge's ownership to drop below 50%, triggering the change of control. The IPO would independently trigger the warrant put right under the Warrant Agreement.

(d) Dividend Recapitalization. Stonefield incurs additional debt and pays a dividend to its equity holders. This would not typically constitute a change of control unless the dividend structure involves a transfer of assets constituting "substantially all" of Stonefield's assets. However, the Senior Credit Agreement and Mezzanine Credit Agreement contain separate restrictions on dividends and restricted payments that would limit this type of transaction.

C. Inadvertent Trigger Scenarios

As discussed in Sections V.B.2 and V.B.3 above, certain internal restructurings or management equity issuances initiated by Cascade Ridge could inadvertently trigger the change of control provisions even though no actual change in economic ownership or control has occurred. These scenarios are addressed in detail in Section IX below.

D. Coordination with Lender Consent Requirements

In addition to the sponsor consent rights described above, any waiver or amendment of the change of control provisions in the Senior Credit Agreement would require the consent of the Required Lenders (defined in the Senior Credit Agreement as lenders holding more than 50% of the outstanding Term Loan B commitments). We note, however, that Section 9.02(b) of the Senior Credit Agreement identifies certain "sacred right" amendments that require the consent of each affected lender (rather than the Required Lenders). Our review indicates that amendments to the change of control definition are not identified as a sacred right, meaning that the Required Lenders (representing more than $137,500,000 of the $275,000,000 Term Loan B) could consent to a waiver or amendment of the change of control provision without unanimity.

Under the Mezzanine Credit Agreement, because Ridgeline is the sole mezzanine lender, any waiver or amendment of the change of control provision requires only Ridgeline's consent. This streamlines the negotiation process for mezzanine modifications but also means that Ridgeline has unilateral control over the scope and terms of the mezzanine change of control.

E. Sponsor Exit Planning

In practice, any planned change of control event would require coordination among Stonefield, Cascade Ridge, the Senior Agent, and Ridgeline to ensure the orderly sequencing of payments, the satisfaction of prepayment obligations, and the resolution of any intercreditor issues. We recommend that Stonefield and its counsel discuss with Vincent A. Palumbo (Managing Partner, Cascade Ridge) the sponsor's current long-term exit timeline and the aggregate cost implications of the mezzanine prepayment premium and warrant put in various exit scenarios. This analysis will inform the negotiation of the change of control provisions and any modifications that may reduce the friction and cost of a future exit.

IX. Potential Gap Scenarios

We have identified four potential gap scenarios in which the divergences between the Senior Credit Agreement and Mezzanine Credit Agreement change of control definitions could produce unexpected or problematic outcomes. Each scenario is described below, together with an analysis of the triggering effects under each agreement and our recommended mitigation strategies.

A. Scenario 1: Internal Holding Company Restructuring

Facts: Cascade Ridge, acting through SLG Holdings, determines to restructure the intermediate holding company layer for tax optimization purposes. SLG Holdings is merged into a newly formed entity, Cascade Ridge SLG Holding

MEMORANDUM
PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
TO: Stephanie Okafor, Partner, Banking & Finance, Calderwood & Harkness LLP Robert D. Nagamine, General Counsel & Secretary, Stonefield Logistics Group Inc.
FROM: Daniel Obi, Lead Associate, Banking & Finance, Calderwood & Harkness LLP
DATE: August 25, 2023
RE: Analysis of Change of Control Provisions — Comparison of Senior Credit Agreement and Mezzanine Credit Agreement; Interaction with Warrant Put Rights and Sponsor Consent Rights
Matter No.: 1012-00001
Billing Code: 231892.SLG
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I. Executive Summary
The purpose of this memorandum is to analyze and compare the "change of control" definitions and related consequences under (i) the Amended and Restated Credit Agreement, dated as of April 7, 2022 (the "Senior Credit Agreement"), among Stonefield Logistics Group Inc. ("Stonefield" or "SLG"), Whitmore National Bank, N.A. ("Whitmore") as Administrative Agent and Collateral Agent, and the senior lenders party thereto, as proposed to be amended by Amendment No. 3 to the Senior Credit Agreement to permit the mezzanine incurrence, and (ii) the draft Mezzanine Credit Agreement (the "Mezzanine Credit Agreement") circulated by Archer Blackwell & Moss LLP on August 18, 2023, among Stonefield, Ridgeline Mezzanine Capital Fund III, LP ("Ridgeline"), and the guarantors party thereto.
Both the Senior Credit Agreement and the Mezzanine Credit Agreement contain change of control provisions, each of which triggers distinct consequences upon the occurrence of a "Change of Control" (as defined in the respective agreement). Under the Senior Credit Agreement, a change of control constitutes an Event of Default, which entitles the Senior Agent and the Required Lenders to accelerate the entire outstanding principal balance of the senior facilities plus accrued interest and all other obligations. Under the Mezzanine Credit Agreement, a change of control triggers a mandatory prepayment obligation requiring Stonefield to offer to prepay the entire outstanding principal balance of the mezzanine facility at a premium of 103% of outstanding principal, together with all accrued and unpaid interest, including capitalized payment-in-kind ("PIK") interest.
Additionally, the Warrant Agreement to be dated as of the closing date of the mezzanine financing will contain a change of control put right entitling Ridgeline to require Stonefield (or its equity holders) to repurchase the warrants at fair market value upon the occurrence of a change of control.
The three definitional triggers in the Mezzanine Credit Agreement are: (a) the acquisition by any person or group (other than Cascade Ridge Capital Partners, LLC and its affiliates) of more than 50% of the outstanding voting equity interests of Stonefield; (b) Stonefield ceasing to be a direct wholly-owned subsidiary of Cascade Ridge SLG Holdings, LLC ("SLG Holdings"); and (c) the sale, transfer, or other disposition of all or substantially all of the assets of Stonefield and its subsidiaries, taken as a whole.
Key Finding: While the Senior Credit Agreement and Mezzanine Credit Agreement change of control definitions are substantially aligned in their core structure and triggering thresholds, there are notable differences in specificity regarding the Cascade Ridge carve-out, the treatment of intermediate holding company restructurings, the scope of excluded persons, and the "substantially all assets" formulation. These differences could create scenarios where a change of control is triggered under one agreement but not the other, with significant financial and operational consequences for Stonefield and its stakeholders. In particular, the Senior Credit Agreement utilizes a broader defined term — "Permitted Holder" — to carve out the sponsor group from the change of control trigger, while the Mezzanine Credit Agreement references the specific legal entity "Cascade Ridge Capital Partners, LLC and its affiliates," a formulation that may prove narrower in certain factual circumstances, including fund transfers, sponsor entity restructurings, and successor fund scenarios.
This memorandum also addresses the interaction of the change of control provisions with the Intercreditor Agreement governing the relative rights of the Senior Agent and Ridgeline, the warrant put rights held by Ridgeline under the Warrant Agreement, and the sponsor consent rights held by Cascade Ridge Capital Partners, LLC. Finally, we identify several potential gap scenarios and set forth our recommendations for negotiating modifications to narrow or eliminate these gaps prior to the execution of the Mezzanine Credit Agreement and Amendment No. 3.
II. Background and Transaction Context
A. The Borrower
Stonefield Logistics Group Inc. is a Delaware corporation headquartered at 4800 Commerce Parkway, Suite 1200, Fort Worth, Texas 76107. Stonefield operates a national network of less-than-truckload ("LTL") and intermodal freight services across the continental United States, with approximately 185 terminal locations, 4,200 owned tractors, and 12,800 trailers. For the twelve-month period ending June 30, 2023 (the "LTM Period"), Stonefield reported consolidated revenue of approximately $742,000,000 and Adjusted EBITDA (as defined in the Senior Credit Agreement) of approximately $108,600,000.
B. The Sponsor
Cascade Ridge Capital Partners, LLC ("Cascade Ridge") is a Delaware limited liability company with its principal office at 200 Clarendon Boulevard, 38th Floor, Boston, Massachusetts 02116. Cascade Ridge is a middle-market private equity firm focused on business services and logistics investments. The firm's Managing Partner is Vincent A. Palumbo.
Cascade Ridge acquired Stonefield in a take-private transaction completed on November 15, 2019, for a total enterprise value of approximately $520,000,000, funded through a combination of equity contributed by Cascade Ridge Capital Fund V, LP ("Fund V"), rollover equity from Stonefield management, and debt financing under the Senior Credit Agreement. As of the date hereof, Cascade Ridge holds approximately 78.4% of the outstanding equity interests of Stonefield through the intermediate holding company Cascade Ridge SLG Holdings, LLC, a Delaware limited liability company formed for the purpose of holding the Stonefield equity. The remaining approximately 21.6% of Stonefield's equity is held by management equity participants and co-investors pursuant to the terms of the Stockholders Agreement dated as of November 15, 2019.
C. Existing Senior Credit Facilities
The existing Senior Credit Facility consists of:
(a) a $275,000,000 Senior Secured Term Loan B facility (bearing interest at a rate of SOFR plus 375 basis points per annum, subject to a 0.50% SOFR floor, and maturing on November 15, 2026) (the "Term Loan B"); and
(b) a $50,000,000 Senior Secured Revolving Credit Facility (bearing interest at a rate of SOFR plus 350 basis points per annum, with a commitment fee of 0.50% per annum on undrawn commitments, and maturing on November 15, 2025) (the "Revolving Facility" and, together with the Term Loan B, the "Senior Facilities").
Whitmore National Bank, N.A. serves as the Administrative Agent and Collateral Agent under the Senior Credit Agreement. The senior lender syndicate consists of the following institutions and approximate hold amounts:
As of August 15, 2023, the outstanding principal balance under the Term Loan B is $275,000,000 (no scheduled amortization payments having yet come due), and the drawn amount under the Revolving Facility is approximately $12,000,000 in revolving loans and approximately $3,200,000 in outstanding letters of credit.
D. Proposed Mezzanine Financing
The proposed mezzanine financing consists of a $120,000,000 mezzanine term loan (the "Mezzanine Loan") to be provided by Ridgeline Mezzanine Capital Fund III, LP, a Delaware limited partnership with offices at 1700 Market Street, Suite 3400, Philadelphia, Pennsylvania 19103. The Mezzanine Loan will bear interest at a total rate of 1,100 basis points (11.00%) per annum, allocated between (i) 850 basis points of cash-pay current interest and (ii) 250 basis points of PIK interest, which will be capitalized and added to the outstanding principal balance of the Mezzanine Loan on each quarterly interest payment date. The Mezzanine Loan will mature on September 29, 2029 and will be secured by a second-priority lien on substantially all assets of Stonefield and its subsidiary guarantors, subordinate to the first-priority liens securing the Senior Facilities.
In connection with the Mezzanine Loan, Stonefield will issue to Ridgeline warrants (the "Warrants") representing 3.0% of the fully-diluted equity of Stonefield on a post-exercise basis, with a nominal exercise price of $0.01 per share. The terms of the Warrants will be governed by a Warrant Agreement to be dated as of the closing date of September 29, 2023.
E. Post-Closing Capital Structure
Following the closing of the Mezzanine Loan and the execution of Amendment No. 3, Stonefield's total funded debt will be as follows:
Total leverage on a pro forma basis will be approximately 3.75x LTM Adjusted EBITDA of $108,600,000 (comprising approximately 2.64x senior secured leverage and approximately 1.10x mezzanine leverage). First lien net leverage, as calculated under the Senior Credit Agreement's financial maintenance covenant, will be approximately 2.53x after netting approximately $12,400,000 of unrestricted cash.
F. Transaction Timeline and Counsel
Amendment No. 3 to the Senior Credit Agreement will be executed simultaneously with the Mezzanine Credit Agreement and the Intercreditor Agreement on the anticipated signing date of September 14, 2023. The closing of the Mezzanine Loan and funding of the $120,000,000 term loan is expected to occur on September 29, 2023, subject to satisfaction of customary closing conditions.
The following law firms are engaged in connection with the transaction:
• Calderwood & Harkness LLP (Stephanie Okafor, partner; Daniel Obi, lead associate) — counsel to Stonefield as Borrower.
• Archer Blackwell & Moss LLP (Harrison T. Moss, lead partner; Angela N. Whitford, lead associate) — counsel to Ridgeline as Mezzanine Lender.
• Renshaw Pratt LLP (David C. Renshaw, lead partner) — counsel to Whitmore National Bank, N.A. as Senior Agent.
• Caldwell Baines & Associates, PC (Patricia V. Baines) — tax counsel to Stonefield.
III. Change of Control Definition — Senior Credit Agreement (as Proposed to Be Amended)
A. Current Definition
The Amended and Restated Credit Agreement dated as of April 7, 2022, defines "Change of Control" in Section 1.01 (Definitions), and the occurrence of a Change of Control constitutes an Event of Default under Section 7.01(j) of the Senior Credit Agreement. As currently in effect (and as proposed to remain in effect following Amendment No. 3), the definition of "Change of Control" is triggered upon the occurrence of any of the following events:
Trigger (a) — Voting Equity Acquisition. Any "person" or "group" (as those terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder), other than any Permitted Holder, shall have acquired, directly or indirectly, beneficial ownership (as defined in Rule 13d-3 promulgated under the Exchange Act) of more than 50% of the aggregate ordinary voting power represented by the issued and outstanding voting equity interests of Stonefield. The defined term "Permitted Holder" is set forth in Section 1.01 of the Senior Credit Agreement and means (i) Cascade Ridge Capital Partners, LLC, (ii) any controlled affiliate of Cascade Ridge Capital Partners, LLC, (iii) any investment fund or investment vehicle that is managed, advised, or controlled by Cascade Ridge Capital Partners, LLC or any of its controlled affiliates (including any successor fund), (iv) any managing member, general partner, director, officer, or employee of any of the foregoing who is a co-investor, and (v) any management equity holders of Stonefield holding equity interests pursuant to a management equity plan approved by the board of directors of Stonefield, so long as such management equity holders do not in the aggregate hold more than 15% of the outstanding voting equity interests of Stonefield.
The "Permitted Holder" definition in the Senior Credit Agreement is thus relatively broad. It encompasses not only Cascade Ridge Capital Partners, LLC and its direct controlled affiliates, but also any investment fund or vehicle managed, advised, or controlled by Cascade Ridge, explicitly including successor funds. This breadth is significant in the context of private equity fund life cycles, as it contemplates the possibility that Stonefield's equity may be transferred from Fund V to a successor fund (such as a hypothetical Cascade Ridge Capital Fund VI, LP) without triggering a change of control.
Trigger (b) — Direct Parent Ownership. Stonefield shall cease to be a direct wholly-owned subsidiary of Cascade Ridge SLG Holdings, LLC. The Senior Credit Agreement specifically references the intermediate holding company by its full legal name and requires that Stonefield remain directly owned — i.e., that there be no interposition of additional entities between SLG Holdings and Stonefield, and that SLG Holdings maintain 100% of the issued and outstanding equity interests of Stonefield. The reference to "wholly-owned" means ownership of 100% of the issued and outstanding equity interests, without carve-out for management equity or minority interests.
Trigger (c) — Asset Disposition. The sale, transfer, or other disposition (whether in a single transaction or a series of related transactions) of all or substantially all of the assets of Stonefield and its subsidiaries, taken as a whole, to any person other than a Permitted Holder (as defined above). This trigger is framed broadly to capture not only outright sales but also transfers, contributions, assignments, and other dispositions, and it applies to a series of related transactions to prevent structured dispositions designed to avoid the change of control trigger.
Trigger (d) — Board Composition (Continuing Directors). The Senior Credit Agreement contains an additional change of control trigger that is not replicated in the Mezzanine Credit Agreement. Specifically, a Change of Control occurs if a majority of the seats (other than vacant seats) on the board of directors of Stonefield shall at any time be occupied by persons who were not (i) members of the board of directors of Stonefield on the closing date of the original Senior Credit Agreement (November 15, 2019) (the "Existing Directors"), (ii) nominated for election or elected to the board of directors with the approval or recommendation of a majority of the Existing Directors or directors previously so nominated or elected (collectively with the Existing Directors, the "Continuing Directors"), or (iii) nominated for election or elected to the board of directors by Cascade Ridge Capital Partners, LLC or any Permitted Holder exercising its rights under the Stockholders Agreement or Stonefield's organizational documents.
This Continuing Directors provision is a standard feature of leveraged credit agreements and is designed to protect lenders against hostile changes in board composition that could signal a loss of control by the incumbent equity holders. In the context of a sponsor-controlled company such as Stonefield, the practical significance of this trigger is limited because Cascade Ridge, through SLG Holdings, controls the appointment and removal of all directors under Stonefield's certificate of incorporation and the Stockholders Agreement. Nevertheless, the Continuing Directors trigger represents a fourth basis for a change of control under the Senior Credit Agreement that does not exist in the Mezzanine Credit Agreement.
B. Proposed Amendments (Amendment No. 3)
We have reviewed the draft of Amendment No. 3 to the Senior Credit Agreement circulated by Renshaw Pratt LLP on August 12, 2023. Amendment No. 3 does not substantively alter the definition of "Change of Control" in the Senior Credit Agreement. The amendments effected by Amendment No. 3 are focused on the following:
(i) The addition of a new defined term "Permitted Mezzanine Debt" to permit the incurrence of up to $120,000,000 in aggregate principal amount of mezzanine indebtedness from Ridgeline, subject to specified terms and conditions;
(ii) Amendments to the negative covenant in Section 6.01 (Indebtedness) to create an exception for the Permitted Mezzanine Debt;
(iii) Amendments to the negative covenant in Section 6.02 (Liens) to authorize the grant of second-priority liens on the Collateral to secure the Permitted Mezzanine Debt, subject to the terms of the Intercreditor Agreement;
(iv) Amendments to Section 6.09 (Restricted Payments) to permit the payment of cash interest and PIK interest on the Permitted Mezzanine Debt, subject to certain conditions (including absence of a continuing Event of Default under the Senior Credit Agreement);
(v) A new Section 6.18 requiring Stonefield to enter into the Intercreditor Agreement simultaneously with the closing of the Permitted Mezzanine Debt; and
(vi) Certain conforming amendments to other provisions of the Senior Credit Agreement.
The consent of the Senior Agent to the transactions contemplated by Amendment No. 3, which was delivered by Whitmore on September 5, 2023, was conditioned upon execution of Amendment No. 3 and the Intercreditor Agreement, compliance with specified leverage and liquidity requirements, and payment of a 25 basis point consent fee to the consenting senior lenders. The consent did not require or request any modification of the change of control provision, and Renshaw Pratt LLP has confirmed that the Senior Agent does not intend to propose any such modifications.
Consequence of Change of Control Under the Senior Credit Agreement. The occurrence of a Change of Control under the Senior Credit Agreement constitutes an Event of Default pursuant to Section 7.01(j). Upon the occurrence and continuance of such Event of Default, the Administrative Agent may (and, at the direction of the Required Lenders, shall) (a) declare the entire outstanding principal balance of the Term Loan B ($275,000,000), together with all accrued and unpaid interest and all other Obligations under the Senior Credit Agreement, to be immediately due and payable, (b) terminate the revolving commitments under the Revolving Facility, (c) demand cash collateralization of all outstanding letters of credit, and (d) exercise all other rights and remedies available to the Senior Agent and the senior lenders under the Senior Credit Agreement, the other Loan Documents, and applicable law. The financial consequence of such acceleration is severe: immediate maturity of the full $275,000,000 Term Loan B, any drawn amounts under the Revolving Facility (currently approximately $12,000,000), and all accrued interest and fees.
IV. Change of Control Definition — Mezzanine Credit Agreement
A. Definition. The draft Mezzanine Credit Agreement, as circulated by Archer Blackwell & Moss LLP on August 18, 2023, defines "Change of Control" in Section 1.01 (Definitions) and contains three triggering events, which are set forth below. We note that the Mezzanine Credit Agreement does not include a Continuing Directors trigger, an omission that represents a deliberate departure from the Senior Credit Agreement's four-trigger structure.
Trigger (a) — Voting Equity Acquisition. Any "person" or "group" (as those terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) other than Cascade Ridge Capital Partners, LLC and its affiliates, shall have acquired, directly or indirectly, beneficial ownership of more than 50% of the aggregate ordinary voting power represented by the issued and outstanding voting equity interests of Stonefield. The Mezzanine Credit Agreement does not use the defined term "Permitted Holder." Instead, it references the specific legal entity "Cascade Ridge Capital Partners, LLC and its affiliates." The term "affiliate" is defined in Section 1.01 of the Mezzanine Credit Agreement in a manner consistent with the standard formulation: "with respect to any person, any other person that directly or indirectly controls, is controlled by, or is under common control with such person," where "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, whether through ownership of voting securities, by contract, or otherwise.
Trigger (b) — Direct Parent Ownership. Stonefield shall cease to be a direct wholly-owned subsidiary of Cascade Ridge SLG Holdings, LLC. This trigger mirrors the corresponding provision in the Senior Credit Agreement and requires that Stonefield remain at all times a direct wholly-owned subsidiary of the specifically named intermediate holding company. The term "wholly-owned subsidiary" is defined in the Mezzanine Credit Agreement to mean a subsidiary of which 100% of the issued and outstanding equity interests (other than directors' qualifying shares or shares required to be held by foreign nationals under applicable law) are owned, directly or indirectly, by the parent entity.
Trigger (c) — Asset Disposition. The sale, transfer, or other disposition of all or substantially all of the assets of Stonefield and its subsidiaries, taken as a whole. Unlike the Senior Credit Agreement, the Mezzanine Credit Agreement's asset disposition trigger does not include the qualifier "to any person other than a Permitted Holder," meaning that an asset disposition to a Cascade Ridge affiliate could potentially trigger the change of control under the Mezzanine Credit Agreement (depending on whether such a disposition truly constitutes a sale of "all or substantially all" assets). This is a subtle but potentially significant difference. Under the Senior Credit Agreement, a transfer of substantially all assets to a Permitted Holder is expressly excluded; under the Mezzanine Credit Agreement, it is not.
B. Consequences Under the Mezzanine Credit Agreement
Upon the occurrence of a Change of Control under the Mezzanine Credit Agreement, the consequences are as follows:
Mandatory Prepayment Obligation. Pursuant to Section 2.11(c) of the Mezzanine Credit Agreement, upon the occurrence of a Change of Control, Stonefield is required to deliver to Ridgeline a written notice (the "Change of Control Notice") within ten (10) business days of the Change of Control event, offering to prepay the entire outstanding principal balance of the Mezzanine Loan at a price equal to 103% of the then-outstanding principal amount, together with all accrued and unpaid interest thereon (including all capitalized PIK interest that has been added to the outstanding principal balance as of the prepayment date), plus any applicable make-whole premium or breakage costs. If Ridgeline accepts the offer (which, from an economic perspective, it almost certainly would), Stonefield must consummate the prepayment within thirty (30) business days following the date of the Change of Control Notice.
Economic Magnitude. At closing, the principal amount of the Mezzanine Loan will be $120,000,000. The 3% premium on the initial principal amount alone would be $3,600,000. However, because the Mezzanine Loan bears PIK interest at 250 basis points per annum (compounding quarterly), the outstanding principal balance will increase over time. By way of illustration:
These figures are approximate and assume no voluntary prepayments. Accrued but unpaid cash interest (at 850 bps) would be payable in addition to the amounts shown.
Relationship to Events of Default. The Change of Control mandatory prepayment is structured as a contractual prepayment obligation rather than as an Event of Default per se. However, Section 7.01(a) of the Mezzanine Credit Agreement provides that the failure of Stonefield to make any payment (including any mandatory prepayment) when due constitutes an Event of Default after a grace period of five (5) business days. Accordingly, if Stonefield fails to make the mandatory prepayment within the required thirty (30) business-day window (plus the five business-day grace period), such failure would ripen into an Event of Default under the Mezzanine Credit Agreement, entitling Ridgeline to accelerate the entire outstanding balance and exercise all available remedies (subject to the Intercreditor Agreement).
Timing. As noted above, Stonefield must deliver the Change of Control Notice within ten (10) business days of the Change of Control event and must consummate the prepayment within thirty (30) business days thereafter. This creates a maximum window of approximately forty (40) business days from the Change of Control event to completion of the mandatory prepayment.
V. Side-by-Side Comparison of Change of Control Triggers
A. Tabular Comparison
The following table provides a detailed side-by-side comparison of each element of the change of control definition under the Senior Credit Agreement and the Mezzanine Credit Agreement, together with our observations regarding areas of alignment and divergence:
B. Analysis of Key Divergences
1. Scope of the Cascade Ridge Carve-Out. As illustrated in the table above, the most significant definitional divergence between the two agreements concerns the scope of persons excluded from the voting equity acquisition trigger. The Senior Credit Agreement employs the defined term "Permitted Holder," which is constructed as a multi-layered definition designed to accommodate the full range of structures and relationships common in private equity-controlled portfolio companies. In particular, the inclusion of "any investment fund or investment vehicle that is managed, advised, or controlled by Cascade Ridge Capital Partners, LLC or any of its controlled affiliates (including any successor fund)" is specifically drafted to address the fund life-cycle issue — i.e., the possibility that Fund V may reach the end of its investment term and that Stonefield's equity may need to be transferred to a successor vehicle within the Cascade Ridge platform.
By contrast, the Mezzanine Credit Agreement references only "Cascade Ridge Capital Partners, LLC and its affiliates." While the definition of "affiliate" (based on a standard control/controlled by/common control formulation) may be sufficiently broad to capture most entities within the Cascade Ridge organizational structure, it raises the following specific concerns:
(a) Successor Funds. If Cascade Ridge Capital Partners, LLC sponsors a new fund — for example, Cascade Ridge Capital Fund VI, LP — and transfers the Stonefield equity from Fund V to Fund VI as part of a continuation vehicle or secondary transaction, the question arises whether Fund VI would qualify as an "affiliate" of Cascade Ridge Capital Partners, LLC. This determination would turn on whether Cascade Ridge Capital Partners, LLC "controls" Fund VI within the meaning of the affiliate definition. In most private equity fund structures, the general partner entity (which is typically controlled by the management company) controls the fund. If Cascade Ridge Capital Partners, LLC controls the general partner of Fund VI (either directly or indirectly), then Fund VI would likely qualify as an affiliate. However, if there has been any restructuring of the management company, change in the general partner entity, or departure of key principals, the analysis becomes more uncertain. The Senior Credit Agreement's "Permitted Holder" definition avoids this ambiguity entirely by explicitly referencing "any investment fund or investment vehicle that is managed, advised, or controlled by" Cascade Ridge, using "managed" and "advised" as independent bases for inclusion alongside "controlled."
(b) Management Company Restructurings. Private equity sponsors periodically restructure their management companies for tax, regulatory, or succession planning purposes. If Cascade Ridge Capital Partners, LLC were to merge into, or transfer its assets to, a newly formed management entity (e.g., "Cascade Ridge Capital Advisors, LLC"), the new entity might not technically be an "affiliate" of the original entity (particularly if the original entity ceases to exist). Under the Senior Credit Agreement's "Permitted Holder" definition, the broader language (including references to successor entities and controlled affiliates) would likely cover this scenario. Under the Mezzanine Credit Agreement's narrower formulation, there is a meaningful risk that such a restructuring could inadvertently trigger the change of control.
(c) Management Co-Investors. The Senior Credit Agreement's "Permitted Holder" definition explicitly includes management equity holders up to a 15% ownership threshold. The Mezzanine Credit Agreement's formulation does not include any such carve-out for management co-investors. While management equity holders at Stonefield's current ownership levels (approximately 21.6% in the aggregate, inclusive of co-investors and management) would not individually or as a group exceed 50% of the voting equity (and thus would not independently trigger the >50% threshold), the absence of a management carve-out could become relevant in combination with other structural changes.
Recommendation: We recommend seeking to align the Mezzanine Credit Agreement's carve-out with the Senior Credit Agreement's "Permitted Holder" concept, either by importing the same defined term or by expanding the Mezzanine Credit Agreement's excluded persons language to explicitly cover successor funds managed, advised, or controlled by Cascade Ridge, successor management entities, and management equity holders up to a stated percentage threshold. This alignment would reduce the risk of divergent outcomes and simplify compliance monitoring for Stonefield's legal and finance teams.
2. Direct Parent / Wholly-Owned Subsidiary Requirement. Both the Senior Credit Agreement and the Mezzanine Credit Agreement require that Stonefield remain at all times a direct wholly-owned subsidiary of the specifically named intermediate holding company, Cascade Ridge SLG Holdings, LLC. While this requirement is aligned across the two agreements, it presents a structural rigidity that merits careful consideration.
The requirement that Stonefield remain a "direct" subsidiary of SLG Holdings means that no additional entity may be interposed between SLG Holdings and Stonefield in the organizational chain. This precludes, for example, the creation of a new intermediate holding company between SLG Holdings and Stonefield for tax planning purposes (such as creating a tax blockers or alternative structures to optimize state or federal tax treatment), for regulatory purposes (such as creating a regulated holding company in a state requiring trucking licenses to be held by specific entity types), or for liability management purposes.
The requirement that Stonefield remain "wholly-owned" by SLG Holdings means that SLG Holdings must hold 100% of the issued and outstanding equity interests of Stonefield at all times. This creates a potential conflict with management equity programs. Currently, Cascade Ridge holds 78.4% of Stonefield's equity through SLG Holdings, and the remaining 21.6% is held by management and co-investors. Based on our review of Stonefield's organizational documents, we understand that the management equity interests are held directly by the individual holders at the Stonefield level (not at the SLG Holdings level). If this understanding is correct, then SLG Holdings does not currently own 100% of Stonefield's equity — it owns approximately 78.4%.
This presents an immediate interpretive question: Has the change of control trigger (b) already been tripped? The answer depends on the precise structure of the management equity. If the management equity is structured as a separate class of non-voting interests, limited liability company interests, or profits interests that do not constitute "equity interests" as defined in the relevant agreement, then SLG Holdings may still be considered the owner of 100% of the relevant "equity interests" for purposes of the change of control definition. We have reviewed the Stonefield LLC Agreement (as Stonefield was initially organized as an LLC before conversion to a corporation) and the subsequent Certificate of Incorporation and note that the management equity consists of shares of Class B Common Stock of Stonefield, which carry voting rights on an as-converted basis. This suggests that, structurally, SLG Holdings does not currently hold 100% of the outstanding equity interests of Stonefield.
However, we note that Section 1.01 of both the Senior Credit Agreement and the Mezzanine Credit Agreement contains a specific acknowledgment that the management equity structure as described in the Stockholders Agreement and the organizational documents delivered on the closing date is a "permitted" structure and does not constitute a Change of Control. This acknowledgment effectively grandfathers the existing management equity structure. The concern, however, is whether future issuances of management equity — beyond the levels existing on the closing date — could erode SLG Holdings' percentage ownership and trigger the "wholly-owned" requirement.
Recommendation: We recommend that both agreements include a specific carve-out for customary management incentive equity programs, providing that the issuance of equity interests to management, directors, and employees pursuant to equity incentive plans approved by the board of directors of Stonefield shall not, in and of itself, cause Stonefield to cease to be a "wholly-owned" subsidiary of SLG Holdings, provided that such issuances do not in the aggregate exceed a specified percentage (we recommend 10% to 15% of the total outstanding equity interests on a fully-diluted basis) of Stonefield's equity. This carve-out should be consistent across both agreements to avoid divergent triggering outcomes.
3. "Substantially All Assets" Ambiguity. Both the Senior Credit Agreement and the Mezzanine Credit Agreement use the phrase "all or substantially all" assets in their respective asset disposition triggers, without defining a quantitative threshold for what constitutes "substantially all." This is a well-recognized area of legal ambiguity.
Under Delaware law — which is relevant because Stonefield is a Delaware corporation — the "substantially all" standard has been interpreted by the Delaware courts in a line of cases beginning with Gimbel v. Northgate Technologies, Inc., 316 A.2d 599 (Del. Ch. 1974), aff'd, 316 A.2d 619 (Del. 1974). The Delaware courts have adopted a combined quantitative and qualitative test, examining (i) the percentage of total assets, revenues, and earnings attributable to the assets being transferred, and (ii) whether the transaction is "out of the ordinary" and substantially reduces the corporation's operations in a qualitative sense. The Delaware courts have not adopted a bright-line numerical threshold, and outcomes are highly fact-specific. Dispositions of assets representing 50% to 75% of total consolidated assets have been found to constitute "substantially all" in some circumstances but not others.
Under New York law — which governs both the Senior Credit Agreement and the Mezzanine Credit Agreement — the analysis is similar. New York courts have applied an analogous multi-factor test, but with less developed case law in the specific context of credit agreement change of control triggers. In practice, New York courts interpreting credit agreement provisions look primarily to the plain language of the contract and the reasonable expectations of the parties, which provides limited guidance when the term at issue ("substantially all") is itself inherently imprecise.
The absence of a quantitative safe harbor means that Stonefield, its counsel, and its lenders face inherent uncertainty in the event of a partial asset disposition. As discussed in Section IX below (Scenario 3), a divestiture of a material subsidiary or business line — such as the intermodal division operated by Stonefield Intermodal Services, Inc., which represents an estimated 28% to 32% of consolidated assets and approximately 25% of consolidated revenue — would fall into a gray zone under both agreements.
We also note a secondary divergence: as discussed above, the Senior Credit Agreement's asset disposition trigger excludes transfers "to any person other than a Permitted Holder," while the Mezzanine Credit Agreement does not include this Permitted Holder carve-out. This means that an intra-group transfer of substantially all assets to a Cascade Ridge affiliate (for example, in connection with a reorganization or restructuring) could theoretically trigger the Mezzanine change of control without triggering the Senior change of control.
Recommendation: We recommend proposing a quantitative safe harbor in both agreements, specifying that the sale, transfer, or other disposition of assets shall not constitute a "Change of Control" unless such assets represent 75% or more of (x) the consolidated total assets of Stonefield and its subsidiaries as reflected on the most recent balance sheet delivered pursuant to the financial reporting covenants, or (y) the consolidated total revenue of Stonefield and its subsidiaries for the most recently completed four fiscal quarter period. Additionally, the Mezzanine Credit Agreement's asset disposition trigger should be amended to include a Permitted Holder carve-out consistent with the Senior Credit Agreement, to prevent inadvertent triggering in the context of intra-group reorganizations.
4. Board Composition Trigger (Senior Agreement Only). As described in Section III.A above, the Senior Credit Agreement contains a fourth change of control trigger based on the composition of Stonefield's board of directors (the "Continuing Directors" trigger), which provides that a Change of Control occurs if a majority of the board seats are occupied by persons who are not Continuing Directors (defined to include original closing-date directors, directors nominated or approved by Continuing Directors, and directors nominated by Cascade Ridge or any Permitted Holder).
The Mezzanine Credit Agreement does not include a Continuing Directors trigger. This creates an asymmetry: a change in board composition meeting the Continuing Directors trigger would constitute a Change of Control under the Senior Credit Agreement (and thus an Event of Default) but would not constitute a Change of Control under the Mezzanine Credit Agreement (and thus would not trigger the mandatory prepayment obligation).
In practice, the significance of this asymmetry is limited in the current context, for two reasons. First, as long as Cascade Ridge (through SLG Holdings) controls a majority of the voting equity of Stonefield, Cascade Ridge has the ability to appoint and remove all directors, making an involuntary board turnover extremely unlikely. Second, even if a board composition change were to occur (for example, if Cascade Ridge voluntarily ceded board control as part of a minority investment or a governance reform), such an event would likely be accompanied by other structural changes that would independently trigger the Mezzanine change of control (e.g., a transfer of equity interests or a sale of assets).
Nevertheless, the asymmetry is worth noting for completeness, and we recommend that Stonefield's compliance team monitor board composition changes as a matter of course to ensure that any change triggering the Senior change of control is identified promptly and that the implications under both the Senior and Mezzanine facilities are assessed.
VI. Interaction with Intercreditor Agreement
The Intercreditor Agreement, to be dated as of September 14, 2023 (the "Intercreditor Agreement"), will be entered into among Whitmore National Bank, N.A. as Senior Agent, Ridgeline Mezzanine Capital Fund III, LP as Mezzanine Lender, and acknowledged and agreed by Stonefield Logistics Group Inc. and the subsidiary guarantors. The Intercreditor Agreement governs the relative rights and priorities of the Senior Agent and Ridgeline with respect to the shared collateral, the exercise of remedies, and the subordination of mezzanine payments during specified periods.
The interaction between the change of control provisions and the Intercreditor Agreement raises several complex issues, which we analyze below.
A. Enforcement Standstill
If a Change of Control triggers an Event of Default under the Senior Credit Agreement and the senior lenders elect to accelerate the Senior Obligations, the Intercreditor Agreement imposes a 180-day enforcement standstill on Ridgeline's ability to exercise remedies against the shared collateral. During this standstill period (the "Senior Enforcement Period"), the Senior Agent has the sole and exclusive right to exercise remedies against the shared collateral, including the right to foreclose on liens, sell collateral in a commercially reasonable manner, and apply proceeds in accordance with the payment waterfall specified in the Intercreditor Agreement. Ridgeline may not exercise any remedies against the shared collateral during the Senior Enforcement Period, and any proceeds received by Ridgeline from the shared collateral during this period must be turned over to the Senior Agent.
The standstill expires on the earlier of (i) the 180th day following the commencement of the Senior Enforcement Period and (ii) the date on which the Senior Obligations have been indefeasibly paid in full in cash. After the expiration of the Senior Enforcement Period, Ridgeline is free to exercise its own remedies against the shared collateral, subject to the Senior Agent's prior lien and the payment waterfall.
B. Payment blockage
Separately from the enforcement standstill, the Intercreditor Agreement contains a payment blockage mechanism. Upon the occurrence of an Event of Default under the Senior Credit Agreement, the Senior Agent may deliver a Payment blockage Notice to Stonefield and Ridgeline, which blocks the payment of "Subordinated Payments" to Ridgeline for a period of up to 180 consecutive days (the "Payment blockage Period"). The Senior Agent may deliver no more than one Payment blockage Notice during any 360-day period.
The critical question in the change of control context is whether the 103% mandatory prepayment to Ridgeline upon a Change of Control constitutes a "Subordinated Payment" subject to blockage under the Intercreditor Agreement. We have reviewed the draft Intercreditor Agreement and note that "Subordinated Payments" is defined to include "all payments of principal, interest (whether cash pay or PIK), fees, premium, or other amounts owing to the Mezzanine Lender under the Mezzanine Loan Documents." Based on this broad definition, the mandatory prepayment at 103% of outstanding principal — which includes both a return of principal and a 3% premium — would appear to fall within the definition of Subordinated Payments and would therefore be subject to blockage during a Payment blockage Period.
This creates a potentially problematic sequencing issue in a change of control scenario. If a single event constitutes a Change of Control under both the Senior Credit Agreement and the Mezzanine Credit Agreement (which, as we have discussed, would be the case for the most common triggering events), the following sequence would occur:
(1) The Change of Control triggers an Event of Default under the Senior Credit Agreement.
(2) The Senior Agent delivers a Payment blockage Notice, blocking Subordinated Payments (including the 103% mandatory prepayment) to Ridgeline for up to 180 days.
(3) The Change of Control simultaneously triggers the mandatory prepayment obligation under the Mezzanine Credit Agreement, requiring Stonefield to deliver a Change of Control Notice within 10 business days and to consummate the prepayment within 30 business days thereafter.
(4) Stonefield is contractually obligated to make the prepayment to Ridgeline under the Mezzanine Credit Agreement, but is contractually prohibited from making the payment to Ridgeline under the Intercreditor Agreement during the Payment blockage Period.
(5) If Stonefield complies with the Payment blockage Notice and withholds the mandatory prepayment, it would fail to make the payment within the 30 business-day window required by the Mezzanine Credit Agreement, which (after the 5 business-day grace period) would constitute an Event of Default under the Mezzanine Credit Agreement.
This circularity could place Stonefield in a position where compliance with one agreement necessarily results in default under the other. We believe this result is not intended by the parties and should be addressed through clarifying language in one or both of the Intercreditor Agreement and the Mezzanine Credit Agreement.
C. Purchase Option
The Intercreditor Agreement grants Ridgeline a purchase option, exercisable upon the occurrence of an acceleration of the Senior Obligations, to purchase the entire outstanding Senior Obligations at a price equal to par (100% of the outstanding principal balance) plus all accrued and unpaid interest, fees, and other amounts owing to the senior lenders. This purchase option must be exercised, if at all, within thirty (30) days of the acceleration of the Senior Obligations.
In a change of control scenario where both facilities are triggered, Ridgeline could exercise its purchase option to acquire the Senior Obligations at par, thereby removing the Payment blockage and the Senior Enforcement Period, and then receive the mezzanine mandatory prepayment directly from Stonefield. This strategy would allow Ridgeline to (i) recover the full Senior Obligations at par (and benefit from any future recoveries on the senior debt in excess of par), and (ii) receive the 103% mandatory prepayment on the mezzanine debt, effectively consolidating both positions.
However, exercising the purchase option would require Ridgeline to deploy substantial additional capital. As of the expected closing date, the Senior Obligations would total approximately $290,200,000 (consisting of $275,000,000 in Term Loan B principal, approximately $12,000,000 in drawn revolving loans, approximately $3,200,000 in letter of credit obligations). Ridgeline would need to assess whether the economics of purchasing the Senior Obligations and receiving the mezzanine prepayment justify the required capital outlay, taking into account the enterprise value of Stonefield in the change of control scenario and the creditworthiness of the acquiring entity.
This creates a complex sequencing issue that requires careful planning in any change of control scenario. We recommend that the Calderwood & Harkness team, together with Stonefield's financial advisors, develop a detailed payment waterfall model for various change of control scenarios, incorporating the intercreditor mechanics, the mezzanine mandatory prepayment, and the warrant put right (discussed in Section VII below).
VII. Interaction with Warrant Put Rights
A. Warrant Structure
Under the Warrant Agreement to be dated as of September 29, 2023 (the closing date of the Mezzanine Loan), Ridgeline will hold warrants representing 3.0% of the fully-diluted equity of Stonefield on a post-exercise basis, with a nominal exercise price of $0.01 per share. The warrants will be exercisable at any time on or after September 29, 2024 (the first anniversary of issuance) and will expire on September 29, 2033 (the tenth anniversary of issuance), subject to earlier exercise or put.
B. Put Right Triggers
The Warrant Agreement includes a put right exercisable by Ridgeline upon the occurrence of any of the following events:
(i) A "Change of Control" (as defined in the Warrant Agreement, which cross-references the definition in the Mezzanine Credit Agreement);
(ii) An initial public offering ("IPO") by Stonefield or any successor entity; or
(iii) The seventh anniversary of issuance (September 29, 2030), if the warrants have not previously been exercised or put.
C. Put Price
Upon exercise of the put right, the put price is equal to the fair market value of the equity interests subject to the warrants (net of the nominal $0.01 per share exercise price), as determined by an independent appraiser mutually selected by Stonefield and Ridgeline. If the parties are unable to agree on an appraiser within fifteen (15) days of the put notice, each party shall select one appraiser, and the two selected appraisers shall jointly select a third appraiser, whose determination shall be final and binding. The appraisal is to be conducted on a going-concern basis, without any discount for lack of marketability or minority interest discount, reflecting the fair market value of 100% of the equity of Stonefield and then allocating 3.0% thereof to Ridgeline's warrants.
D. Aggregate Change of Control Payment Obligation
Upon a change of control, Ridgeline would be entitled to receive both (a) the 103% mandatory prepayment on the mezzanine debt under the Mezzanine Credit Agreement and (b) the fair market value put price on the warrants under the Warrant Agreement. The aggregate payment obligation could be very substantial:
• Mezzanine Prepayment: 103% of the then-outstanding principal balance of the Mezzanine Loan, including all capitalized PIK interest. As illustrated in the table in Section IV.B above, this amount will range from approximately $123,600,000 at closing to approximately $140,074,000 by Year 5, plus accrued cash interest.
• Warrant Put: Fair market value of 3.0% of the fully-diluted equity of Stonefield. By way of illustration, if Stonefield is sold in a change of control transaction at an enterprise value of $700,000,000 (reflecting approximately 6.4x the current LTM Adjusted EBITDA of $108,600,000), and if total net debt at the time of sale is approximately $400,000,000, the implied equity value would be approximately $300,000,000. At 3.0% of fully-diluted equity, the warrant put price would be approximately $9,000,000 (before deducting the nominal $0.01 exercise price). If the enterprise value at exit is higher — for example, $800,000,000 or $900,000,000 — the warrant put price would increase proportionally (to approximately $12,000,000 or $15,000,000, respectively).
• Aggregate: The total payment to Ridgeline upon a change of control could range from approximately $132,600,000 (at closing, at current valuation levels) to well in excess of $155,000,000 (after several years of PIK accretion, at higher exit valuations), exclusive of accrued cash interest.
E. Timing Interaction
The warrant put right and the mezzanine mandatory prepayment are likely to be triggered simultaneously upon a change of control event, because the Warrant Agreement cross-references the Mezzanine Credit Agreement's change of control definition. However, the Mezzanine Credit Agreement and the Warrant Agreement may contain different timing mechanics for consummating the respective payments.
Under the Mezzanine Credit Agreement, Stonefield must deliver a Change of Control Notice within ten (10) business days and consummate the prepayment within thirty (30) business days thereafter. The Warrant Agreement's put mechanics, as currently drafted by Archer Blackwell & Moss LLP, provide that Ridgeline must deliver a put notice within forty-five (45) days of the change of control event, and Stonefield must consummate the repurchase within sixty (60) days of the put notice. This means the warrant put payment could come due significantly later than the mezzanine mandatory prepayment — potentially as late as 105 days after the change of control event, compared to 40 business days for the mezzanine prepayment.
While this staggering may provide some cash flow relief, it also means that Stonefield (or its successor) must plan for two separate large payments within approximately three to four months of a change of control event. In a sale transaction, these payments would typically be funded from the sale proceeds; however, the timing and mechanics of the closing of the sale transaction, the release of escrow funds, and the sequencing of debt repayments must be carefully coordinated.
F. Anti-Dilution Protections
The Warrant Agreement contains weighted-average broad-based anti-dilution protections, which adjust the number of shares issuable upon exercise of the warrants (and, accordingly, the percentage of fully-diluted equity represented by the warrants) in the event of dilutive issuances of equity interests at a price below the then-applicable exercise price. Given the nominal $0.01 exercise price, virtually any equity issuance by Stonefield would be at a price above the exercise price and would therefore not trigger the anti-dilution adjustment. However, certain structural transactions — such as stock splits, reverse stock splits, stock dividends, or recapitalizations — could affect the number of shares issuable upon exercise and should be monitored.
VIII. Interaction with Cascade Ridge Sponsor Consent Rights
A. Structural Control
As the controlling equity holder of Stonefield — holding approximately 78.4% of the outstanding equity interests through SLG Holdings — Cascade Ridge Capital Partners, LLC exercises effective control over all fundamental corporate decisions at Stonefield. This control is exercised through Cascade Ridge's rights under Stonefield's organizational documents (the Certificate of Incorporation and Bylaws) and the Stockholders Agreement dated as of November 15, 2019, among Stonefield, SLG Holdings, Cascade Ridge, and the management equity holders.
Under the Stockholders Agreement, the consent of Cascade Ridge (acting through SLG Holdings) is required for any of the following actions, among others: (i) any merger, consolidation, or business combination involving Stonefield; (ii) any sale, transfer, or disposition of all or substantially all of the assets of Stonefield; (iii) any issuance of equity interests of Stonefield (other than pursuant to approved equity incentive plans); (iv) any amendment to the organizational documents of Stonefield; (v) any incurrence of indebtedness in excess of specified thresholds; and (vi) any voluntary dissolution or liquidation of Stonefield. As a practical matter, therefore, any transaction constituting a change of control under either the Senior Credit Agreement or the Mezzanine Credit Agreement would require the affirmative consent of Cascade Ridge.
B. Voluntary Exit Scenarios
The change of control triggers are designed to address scenarios in which control of Stonefield passes from Cascade Ridge to a third party. In virtually all realistic scenarios, such a change of control would be the result of a voluntary decision by Cascade Ridge to exit its investment in Stonefield. The most common exit scenarios include:
(a) Sale to a Strategic Acquirer. Cascade Ridge sells its equity interest in Stonefield (through a sale of 100% of the equity of SLG Holdings, or a merger of Stonefield with a strategic buyer) to a transportation or logistics company seeking to expand its LTL or intermodal operations. This would trigger the change of control under both the Senior Credit Agreement (trigger (a)) and the Mezzanine Credit Agreement (trigger (a)), as well as the warrant put right.
(b) Secondary Buyout. Cascade Ridge sells its equity interest to another private equity sponsor. The analysis is the same as a strategic sale, with the change of control triggered under both agreements and the warrant put right exercisable.
(c) IPO. Stonefield conducts an initial public offering, with Cascade Ridge retaining a controlling stake initially and selling down over time. An IPO alone would not trigger the change of control under either agreement (as Cascade Ridge would retain more than 50% of the voting equity immediately following the IPO). However, subsequent sell-downs could, over time, cause Cascade Ridge's ownership to drop below 50%, triggering the change of control. The IPO would independently trigger the warrant put right under the Warrant Agreement.
(d) Dividend Recapitalization. Stonefield incurs additional debt and pays a dividend to its equity holders. This would not typically constitute a change of control unless the dividend structure involves a transfer of assets constituting "substantially all" of Stonefield's assets. However, the Senior Credit Agreement and Mezzanine Credit Agreement contain separate restrictions on dividends and restricted payments that would limit this type of transaction.
C. Inadvertent Trigger Scenarios
As discussed in Sections V.B.2 and V.B.3 above, certain internal restructurings or management equity issuances initiated by Cascade Ridge could inadvertently trigger the change of control provisions even though no actual change in economic ownership or control has occurred. These scenarios are addressed in detail in Section IX below.
D. Coordination with Lender Consent Requirements
In addition to the sponsor consent rights described above, any waiver or amendment of the change of control provisions in the Senior Credit Agreement would require the consent of the Required Lenders (defined in the Senior Credit Agreement as lenders holding more than 50% of the outstanding Term Loan B commitments). We note, however, that Section 9.02(b) of the Senior Credit Agreement identifies certain "sacred right" amendments that require the consent of each affected lender (rather than the Required Lenders). Our review indicates that amendments to the change of control definition are not identified as a sacred right, meaning that the Required Lenders (representing more than $137,500,000 of the $275,000,000 Term Loan B) could consent to a waiver or amendment of the change of control provision without unanimity.
Under the Mezzanine Credit Agreement, because Ridgeline is the sole mezzanine lender, any waiver or amendment of the change of control provision requires only Ridgeline's consent. This streamlines the negotiation process for mezzanine modifications but also means that Ridgeline has unilateral control over the scope and terms of the mezzanine change of control.
E. Sponsor Exit Planning
In practice, any planned change of control event would require coordination among Stonefield, Cascade Ridge, the Senior Agent, and Ridgeline to ensure the orderly sequencing of payments, the satisfaction of prepayment obligations, and the resolution of any intercreditor issues. We recommend that Stonefield and its counsel discuss with Vincent A. Palumbo (Managing Partner, Cascade Ridge) the sponsor's current long-term exit timeline and the aggregate cost implications of the mezzanine prepayment premium and warrant put in various exit scenarios. This analysis will inform the negotiation of the change of control provisions and any modifications that may reduce the friction and cost of a future exit.
IX. Potential Gap Scenarios
We have identified four potential gap scenarios in which the divergences between the Senior Credit Agreement and Mezzanine Credit Agreement change of control definitions could produce unexpected or problematic outcomes. Each scenario is described below, together with an analysis of the triggering effects under each agreement and our recommended mitigation strategies.
A. Scenario 1: Internal Holding Company Restructuring
Facts: Cascade Ridge, acting through SLG Holdings, determines to restructure the intermediate holding company layer for tax optimization purposes. SLG Holdings is merged into a newly formed entity, Cascade Ridge SLG Holding

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